EMAGINE ENTERTAINMENT, INC., CH ROYAL OAK, LLC, NORTHSTAR THEATER PARTNERS, LLC, CINEMA HOLLYWOOD, LLC, CH CANTON, LLC, аnd CH NOVI, LLC v DEPARTMENT OF TREASURY
Nos. 350376; 350881
STATE OF MICHIGAN COURT OF APPEALS
November 19, 2020
FOR PUBLICATION
If this opinion indicates that it is “FOR PUBLICATION,” it is subject to revision until final publication in the Michigan Appeals Reports.
Before: REDFORD, P.J., and RIORDAN and TUKEL, JJ.
In these consolidated appeals,1 respondent, Department of Treasury, appeals by right the Michigan Tax Tribunal‘s (MTT) order granting summary disposition to petitioners (hereinafter collectively referred to in the singular as “Emagine“)2 under
I. FACTS & PROCEDURAL HISTORY
Petitioner Emagine owns and operates several movie theaters in Michigan and sells food and beverage items at concession stands. From February 2010 to February 2014, Emagine paid tax on sales of bottled water and prepackaged candy, but subsequently came to believe that paying this sales tax was unnecessary because the sales on those items were exempt. Emagine sought a refund for the sales tax paid during the four-year period. Respondent granted a refund for taxes related to the sales of
Emagine filed а complaint in the MTT alleging that sales of the other food items were exempt from sales tax and that Emagine had not collected sales tax from its customers, thereby entitling Emagine to a refund. Emagine and respondent were subsequently able to “narrow the dispute” and to narrow the relevant time period to January 2013 to December 2013, and the parties agreed that the refund amount for this period totals $79,026.27. Emagine and respondent filed cross-motions for summary disposition pursuant to
II. STANDARDS OF REVIEW
Our review of the MTT‘s decision is limited. Mich Properties, LLC v Meridian Twp, 491 Mich 518, 527; 817 NW2d 548 (2012). The MTT‘s factual findings are final if they are supported by competent, material, and substantial evidence on the whole record, but when the facts are not disputed and fraud is not alleged, our review is limited to whether the MTT made an error of law or adopted a wrong principle. Id. at 527-528. The scope of an administrative agency‘s statutory rulemaking authority and whether an agency has exceeded that authority, whether an administrative rule is arbitrary and capricious, and whether a rule comports with the intent of the Legislature, are questions of law reviewed de novo. Mich Farm Bureau v Dep‘t of Environmental Quality, 292 Mich App 106, 127; 807 NW2d 866 (2011).
Issues of statutory interpretation are reviewed de novo. Mich Properties, LLC, 491 Mich at 528. When interpreting statutes, we must ascertain and give effect to the intent of the Legislature and avoid a construction that would render any part of the statute surplusage or nugatory. Id. Moreover, “the statute must be read as a whole,” and “[i]ndividual words and phrases, while important, should be read in the context of the entire legislative scheme.” Id.
Additionally, we review de novo a decision on summary disposition. Dextrom v Wexford Co, 287 Mich App 406, 416; 789 NW2d 211 (2010). A motion is properly granted pursuant to
III. ANALYSIS
Respondent Department
An administrative agency has power “to interpret the statutes they are bound to administer and enforce.” Clonlara, Inc v State Bd of Ed, 442 Mich 230, 240; 501 NW2d 88 (1993). “[W]hen a statute and an administrative rule conflict, the statute necessarily controls.” Grass Lake Improvement Bd v Dep‘t of Environmental Quality, 316 Mich App 356, 366; 891 NW2d 884 (2016). “While administrative agencies have what have been described as ‘quasi-legislative’ powers, such as rulemaking authority, these agencies cannot exercise legislative power by creating law or changing the laws enacted by the Legislature.” In re Complaint of Rovas Against SBC Mich, 482 Mich 90, 98; 754 NW2d 259 (2008). Although the agency‘s interpretation is entitled to respectful consideration, it is not binding on Michigan courts and cannot conflict with the Legislature‘s intent as expressed in the language of the statute at issue. Id. at 103.
(4) “Prepared food” means the following:
(a) Food sold in a heated state or that is heated by the seller.
(b) Two or more food ingredients mixed or combined by the seller for sale as a single item.
(c) Food sold with eating utensils provided by the seller, including knives, forks, spoons, glasses, cups, napkins, straws, or plates, but not including a container or packaging used to transport the food. [Emphasis added.]
The statute excludes the following items from this definition of “prepared food“:
(a) Food that is only cut, repackaged, or pasteurized by the seller.
(b) Raw eggs, fish, meat, poultry, and foods containing those raw items requiring cooking by the consumer in recommendations contained in section 3-401.11 of part 3-4 of chaрter 3 of the 2001 food code published by the Food and Drug Administration of the Public Health Service of the Department of Health and Human Services, to prevent foodborne illness.
(c) Food sold in an unheated state by weight or volume as a single item, without eating utensils.
(d) Bakery items, including bread, rolls, buns, biscuits, bagels, croissants, pastries, doughnuts, danish, cakes, tortes, pies, tarts, muffins, bars, cookies, and tortillas, sold without eаting utensils. [
MCL 205.54g(5) .]
Rule 86(4) parrots
(a) “Prepared food” means any of the following:
(i) Food sold in a heated state or that is heated by the seller.
(ii) Two or more food ingredients mixed or combined by the seller for sale as a single item.
(iii) Food sold with eating utensils provided by the seller. [Emphasis added.]
Rule 86(5) elaborates on eating utensils and defines the phrase “provided by the seller“:
(5) An eating utensil is considered a tool, instrument, or item used or intended
to be used to facilitate the eating of food. Examples of eating utensils include, but are not limited to, knives, forks, spoons, ice cream/popsicle sticks, skewers, glasses, cups, napkins, straws, and plates. The following apply: (a) An eating utensil does not include a container or packaging used to transport food, such as a plastic carton in which take-out soup or salad is sold. A waxed paper sheet used to select an item, such as a donut or cookie, and then placed in a box or bag for transport with the baked good, is not considered an eating utensil.
(b) Eating utensils are “provided by the seller” under all of the following conditions:
(i) For a seller with a prepared food sales percentage greater than 75%, eating utensils are “provided by the seller” when the utensils are made available to purchasers.
(ii) For a seller with a preparеd food sales percentage of 75% or less, eating utensils are “provided by the seller” if the seller‘s practice, as represented by the seller, is to physically give or hand the utensils to purchasers. Plates, bowls, glasses, or cups necessary for the purchaser to receive the food, for example, a glass for a dispensed soft drink or milk, or a plate for salad from a salad bar, need only be made available. [Emphasis added.]
Thus, Rule 86(5)(b) includes a “75% test,” providing that if a seller‘s prepared food sales percentage was 75% or less, eating utensils would be deemed “provided by the seller” if the seller‘s practice was to physically give or hand utensils to the purchasers, whereas if the percentage was greater than 75% they would be deemed provided if made available. According to respondent, the sales of prepackaged candy are not exempt under this test because more than 75% of Emagine‘s sales were devoted to prepared food and Emagine made eating utensils, such as napkins, available to their customers.
Respondent argues that Rule 86(5)(b) does not conflict with the statute because it merely defines the statutory terms more precisely. The statute provides that food is not exempt if it is food that is sold with eating utensils that are provided by the seller; such utensils include napkins.
The statute provides that food will not be exempt if it is “sold with eating utensils provided by the seller.”
Moreover, respondent‘s interpretation of
Respondent unpersuasively argues that the rule is valid because respondent had authority to administer the Streamlined Sales and Use Tax Agreement (“SSUTA“) and that the SSUTA allows for this test. Respondent contends that, in order for Michigan to remain in compliance with the SSUTA, it “had” to pass this rule because, seemingly, the 75% is not mandated by statute. However, respondent defeats its own argument by conceding that Michigan has not adopted the 75% test by statute and that respondent, accordingly, attempted to remedy this “defect” by writing a rule tо alleviate what it considers to be a statutory gap.
Michigan is a member of the 23-state SSUTA, which “is a multistate compact designed to reduce the burden on out-of-state businesses of complying with state sales and use taxation.” Ally Financial Inc v State Treasurer, 502 Mich 484, 499 & n 32; 918 NW2d 662 (2018). However, any parts of the SSUTA that “are inconsistent with our law do not have effect and may not be read as invalidating or amending any provision of our law.” Id. at 499 n 33 (emphasis added). The GSTA, of which
Emаgine argues that the MTT incorrectly concluded that a refund was not required for the erroneously paid taxes related to the prepackaged candy sales. We disagree.
In the present case, the MTT‘s findings were well-supported by thе record. Paul Glantz, co-founder and chair of Emagine, testified that Emagine‘s financial records included both the price of the item and the sales tax for that item. However, he acknowledged that these financial records did not support his belief that the sales tax had been a mere operating expense, and he could not point to any financial records to support his “оperating expense” view. Glantz testified about the sales tax and item price being “fungible,” but he acknowledged that the financial records did not support this. In fact, Glantz acknowledged that the total tax for the year, which amounted to $206,337.80, came from Emagine‘s customers and that this was reflected in the financial records. Glantz was shown various financial documents which also reflected that the tax was paid by the customers. Additionally, Emagine‘s chief financial officer, Dirk Kjolhede, testified that the sales tax had been collected from the customers in order to pay sales tax to the Michigan government.
Emagine highlights that the financial records were incorrect or inaccurate, but this was merely what Glantz believed. These beliefs were based on his personal knowledge, and he wаs unable to point to any authority in support of his contention. Furthermore, his perceived belief stemmed solely from the lack of signage letting customers know that sales tax was included in the price. In fact, he testified that, at the time of the trial, Emagine used the same customer payment method except for the additional presence of signage. The only difference, thereforе, between the old, supposedly incorrect method and the present, supposedly correct method, is the presence of signage. The financial records for both methods are the same. Therefore, Emagine‘s arguments concerning the accuracy of the financial records is based on Glantz‘s personal views on how signage supposedly affects sales tax.
Emagine points to MJR Group, LLC v Dep‘t of Treasury, unpublished per curiam opinion of the Court of Appeals, issued December 29, 2016 (Docket No. 329119) (MJR II),3 for support, but that case is factually distinguishable from the instant case and the rationale applied in that case does not support Emagine‘s argument. MJR owned a chain of movie theaters, and the issue involved sales tax on bottled water and prepackaged candy. Unpub op at 1. Just like Emagine, MJR had mistakenly рaid sales tax on exempt items, and it accordingly sought a
There was an absence of documentary evidence in MJR II. See id. at 2-3. The software used for setting prices did not contain “transactional details,” and there was no way to discern whether the sales tax was includеd in the item price. Id. at 2. The case turned on the testimony of two witnesses, one of whom had testified that he did not consider sales tax when setting the prices, and another who, in certain statements, had stated that sales tax was included in the item price. See id. This other witness, however, gave inconsistent testimony. Id. at 3. Given the deferential standard of review, we merely examined the evidence and held that the MTT‘s decision was supported because а “reasonable mind” could accept the consistent witness‘s testimony over that of the inconsistent witness‘s testimony. See id. at 3. Furthermore, some of the inconsistent
witness‘s statements supported the MTT‘s conclusions. Id.
Here, as previously discussed, none of the financial records shown to Glantz supported his viewpoint that sales tax was an operating expense and not paid by the customers. Moreover, in contrast to MJR II, Glantz himself testified that the records showed that customers paid the sales tax. Kjolhede testified similarly. This factual scenario was not present in MJR II. Additionally, unlike MJR II, the MTT in the present case ruled against petitioner and found that sales tax was paid by customers. In MJR II, we determined that there was evidence supporting the MTT‘s decision, and the same holds true of the MTT‘s decision in this case.
Emagine next cites principles of contract law and argues that, in the absence of notice to the customers that they were paying sales tax, no sales tax was paid. The cited authority does not support this position. Andrie merely stated that there was no presumption that the sales tax was always included in the purchase price and that it must be proven. Andrie, 496 Mich at 171-172. Additionally,
Accordingly, the MTT‘s conclusion that Emagine‘s customers paid the sales tax was supported by competent, material, and substantial evidence from the record.
IV. CONCLUSION
The MTT did not err in its conclusion that Rule 86(5) was invalid because it conflicted with
/s/ James Robert Redford
/s/ Michael J. Riordan
/s/ Jonathan Tukel